The Aleph Blog » Blog Archive » Blame Game III

Blame Game III

I went on a shopping trip today to buy a desk for my two youngest children (10, 6), both girls.  As I drove, I listened to radio C-Span, because it is “guilt week” for the NPR stations in the area.  In hindsight, I would have rather listened to the begging from the NPR affiliates than what I heard on C-Span.

The program that I heard was hearings on the financial crisis.  All of the testimony fell into the bucket of “not me, there are evil people who tricked us.”  My daughters must have found my negative commentary to be funny.

We have the government that we deserve.  Congress listens to self-interested loonies, rather than seek out those with intelligence that don’t have an axe to grind.  When I wrote the pieces, Blame Game, and Blame Game, Redux, what I tried to express is that there are a lot of parties to blame in our current crisis, and that everyone should ‘fess up their culpability.

With that, I want to add on a few more responsible parties:

29) FICO srcoring enabled loan underwriting to decouple from the local bank investigating the character of the borrower.  There is something lost when the underwriter does not explore the qualitative aspects of the borrower.

30) The fools who wrote that said that it is easy to make money in stocks or real estate.  They always show up near the end of the cycle.

31) Dojo suggests the Prime Brokers — How about the Prime Brokerage business model followed by most banks and investment banks which allowed their speculative clients to go “nuclear” in any marketplace as long as they had a credit facility and a cell phone. A $10 million hedge fund run out of a basement in Westchester County NY or Orange County CA could control $1 Billion worth of goodies in many cases. Yikes!! A bit severe, but there is some validity there.

32) dlr suggests the FDIC — The bank regulators at the FDIC. It was their JOB to maintain oversight of the banking industry. Every regulator who allowed the banks they were monitoring to giving liar loans, or pick a rate loans, or zero down payment loans, and didn’t call a halt, should be fired for malfeasance. The regulators who had oversight of Washington Mutual and Indy Mac should be fired. And their BOSSES should be fired. Right up to Shiela [sic] Blair. I think that all of the banking regulators deserve blame here, plus the Bush administration, who encouraged malign neglect.

My main point is this: if you are defending your core constituency in this crisis, you are at least partially wrong.  There are so many culpable parties, that few are blameless.

Final note: in many ways, this is a proper comeuppance to US policy that encourages home ownership.  Policy was trying to push home ownership to 70%+, when reality should have said “be happy with a stable 60%.”  Home ownership is not an unmitigated good.  Many cannot truly afford it, and the government tricks them into buying what they cannot afford with reasonable probability.

Macroeconomics, Real Estate and Mortgages, Speculation, Structured Products and Derivatives | RSS 2.0 |

4 Responses to Blame Game III

  1. William says:

    I think the naked shorts who fail to deliver borrowed stock on time deserve blame. Patrick Byrne has a lot to say about this.

  2. Annette S. says:

    Another example of manic optimism were the Buy-vs-Rent calculators you could find on bank’s and financial websites.

    I simply never encountered even a single one that gave the option of a DECLINE assumption in home price appreciation.

    It is this kind of pollyana attitude that gets people into trouble. Talk about lack of respect for the devil’s advocate-side of the equation!

  3. Annette, that’s a good one, I hadn’t thought of that. William, that’s another cause, but even with naked shorting and selling of CDS, you can’t destroy a firm with a strong balance sheet and free cash flow.

  4. Erik Kengaard says:

    We have the government that some people deserve.
    It is important to assign blame – or fault – so that appropriate corrective action can be taken. An effective approach would be to use the approach of a tort lawyer. Who had what duties, and to what extent did they perform? Bankers, for example, have no duty to protect the public interest. Congress does (via the oath of office, incorporating the preamble into the substance of the constitution). Bankers, of course, have a duty not to commit fraud, but few bankers have been indicted, at least do far.
    Congress, and the administration of Bush and Clinton, and now Obama, are the main culprits. Chris Dodd is a tool of the banking industry. Look it up. Barney Frank and his insane crusade to give houses to the poor destroyed Fannie Mae and Freddie Mac. Not sure? Review the transcripts of the House Financial Services Committee meetings. Tom Davis (House Committee on Oversight and Government Reform under Bush) fiddled while Rome burned (he investigated baseball while the financial industry crashed).
    Congress writes the rules. Bankers operate within the rules or go to jail. Few bankers are going to jail.
    We all get the government some people – those who don’t get involved – deserve.


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

 Subscribe in a reader

 Subscribe in a reader (comments)

Subscribe to RSS Feed

Enter your Email

Preview | Powered by FeedBlitz

Seeking Alpha Certified

Top markets blogs award

The Aleph Blog

Top markets blogs Bull, Boards & Blogs

Blog Directory - Blogged

IStockAnalyst supporter

All Economists Contributor

Business Finance Blogs
OnToplist is optimized by SEO
Add blog to our blog directory.

Page optimized by WP Minify WordPress Plugin